When Amazon.com posted a public call for proposals to host its new $5 billion headquarters with a potential 50,000 workers, cities and states immediately took advantage of the opportunity to market themselves. But while these officials were busy doing everything they could to lure Amazon, such as offering tax reductions and tax holidays, they forgot about the children in their local public schools who often end up as the losers in these deals.
Arlington, Texas, is the latest city to reveal part of their bid, which has more than $900 million in subsidies including tax reductions, free land, and millions in new buildings and infrastructure.
If successful, this bid would bring tens of thousands of new workers to Arlington, many of whom have families and children that need to be educated in Texas public schools. Subtly tucked in the released documents are details on the hundreds of millions of dollars in new tax revenue that would be needed to pay for their education. The problem is most of that money has already been promised away.
Although the offers being made to Amazon are unique in the number of cities vying for this particular headquarters and how much they are willing to give away, deals like these are happening all over the country.
In many cities, tax incentives like this take money from local property tax revenue that is meant for public education and offer it to corporations. At the same time, these schools must deal with the increasing demands of providing more students with a good education.
In Texas, how much a company pays in local school taxes is limited through a state program called Chapter 313. School districts can cap a company’s local school taxes and are then paid back by the State of Texas for the reduced taxes from this incentive.
We don’t know the full details of Arlington’s offer, but some draft documents indicate that Amazon’s HQ2 could receive millions in tax benefits from 313. According to Arlington documents, an estimated 16,000 kids would enroll in the local schools, and thousands more in other Dallas-area schools, costing more than $460 million over the next 10 years.
Despite these obvious problems, politicians often try to bring companies to their districts by providing incentives. As we show in our book, offering these incentives attaches a politician’s name directly to the new business in their district and makes for great press in ways that building a new bridge or investing in education does not.
A recent poll found that most residents in the 20 finalist cities want Amazon HQ2 in their community. And the majority supported some level of incentives to land the company and its promised jobs, so long as it did not raise their taxes.
Given these reactions, big incentive deals make political sense, even if they do not make economic sense.
The winning bidder will be able to claim credit for luring Amazon. And in the 237 locations that are going to lose the bidding war, city officials can argue that they did everything possible. By focusing their constituents’ attention on the potential for new jobs, politicians and economic developers are effectively using public funds for political gain.
With 50,000 jobs created in the region, and many of those jobs going to people who don’t already live there, the HQ2-winning location will need to make investments in education, infrastructure, housing, waste collection and public transit just to maintain the current levels of service. These services depend on new tax revenue that in many cases, such as Arlington, has already been promised to Amazon in the incentives.
The two benefits of a new investment are tax revenue and jobs. Most competing cities have opted to pass on Amazon’s tax dollars to win the bid. Although high-paying new jobs will likely become available, not everyone can or wants to be employed at HQ2. This will create an uncomfortable choice for residents in the 20 locations still competing. Are they willing to sacrifice vital services such as public education to win the Amazon sweepstakes? Voters ought to demand more accountability in what is offered to possible companies.
Nathan M. Jensen is a professor of government at The University of Texas at Austin and a member of the Scholars Strategy Network. Edmund J. Malesky is a professor of political science at Duke University. They are authors of “Incentives to Pander: How Politicians Use Corporate Welfare for Political Gain.”
A version of this op-ed appeared in the Dallas Morning News and the Austin American Statesman.